Japanese Yen Continues to Face Losses Following BOJ Decision
As global demand for the US dollar increases, the Japanese yen continues to weaken following the Bank of Japan's (BOJ) decision to maintain interest rates. The BOJ's decision today weakened the support for the yen, contributing to the currency's depreciation. The dollar surpassed 156.50 against the yen, reaching its highest level in four months.
The pound rose to 197.50 against the yen, reaching its highest value in a month, but faced strong resistance near the 200 level. The BOJ's recent policy meeting, where interest rates were kept at 0.25% as expected, was not a surprise for investors. However, a minority of investment banks were anticipating an interest rate hike.
Impact of the Fed on global markets The Japanese yen further depreciated following the Federal Reserve's (Fed) decision to adopt a more hawkish policy. The increase in US yields reduced the appeal of the Japanese yen, intensifying selling pressure. The Fed signaled a more cautious approach by reducing its previously projected four interest rate cuts to two for 2025.
On the other hand, BOJ Governor Kazuo Ueda's ambiguous messages during the press conference did not meet investors' expectations. Ueda mentioned that they would reassess in January, but this evaluation would also take into account the effects of US President Donald Trump potentially returning to office.
Market analysts suggest that the Fed's pause decision and the BOJ's hesitant approach could lead to upward pressure on the dollar/yen pair. The Fed's more hawkish stance has caused significant movements in other currencies, leading investors to lower their expectations for interest rate cuts in the coming year. The dollar index found balance at 108.05 after testing its highest levels in two years.
Euro and pound partially recover losses The euro partially recouped its losses after a daily decline of 1.32% following the Fed's decision, recovering towards 1.04. Following the sharp drop in the euro, profit-taking was observed, although analysts highlighted that volatility remains high due to low holiday trading volumes.
The Bank of England also kept interest rates steady at 4.75% as expected, leading to a decline in the pound after three policymakers voted for an interest rate cut. Investors had anticipated that only one official would choose to cut rates. After a 1% drop in yesterday's trading, the pound fell to the 1.25 dollar range before attempting to find balance at the 1.26 dollar level.